The past three months have been some the most difficult for many of us. As the state eases into reopening, New Yorkers are finding the world as we know it has changed.

As I speak with countless small businesses from around the state, they express to me that they have had to confront some difficult questions. Chief among them are “How will I survive this”?

While many businesses chose to apply and accept forgivable loans from the SBA’s Paycheck Protection Program (PPP), they were also waiting for guidance on the forgiveness rules.

This week SBA introduced long awaiting guidance and a EZ application on PPP Forgiveness and finally reopened the Economic Injury Disaster Loan (EIDL) program.

Paycheck Protection Program (PPP)

Two weeks ago, Congress passed the PPP Flexibility Act, which amended the PPP and lowered the forgiveness threshold.

The new law lowered the 75/25 expenditure rule to 60/40. This means that to receive full forgiveness you have to have spent at least 60% of your loan on payroll costs and no more than 40% on the other defined non-payroll costs during the covered period. The Covered Period was extended from eight (8) weeks to twenty-four (24) weeks from the date the loan was dispersed.

Further the SBA streamlined the forgiveness process (SBA Application Form 3508) for borrowers who meet any of the following criteria:

·        Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.

·        Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (excepting laid-off employees who refused an offer to return).

·        Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19.

The EIDL program has now reopened. You can apply and receive an EIDL and PPP at the same time. This program offers two distinct sources of financial assistance.

EIDL Grant: Upon applying you will receive $1,000 per employee up to $10,000. This is not part of the loan and you are not required to take the loan to receive the funds. Though the SBA rules are changing daily, so you should check with your advisor or SBA representative for up-to-date information.

EIDL Loan: You can receive up to $150,000 in loan dollars. Though the SBA website still lists the cap at $2M, the SBA Administrator has restricted this amount due to the overwhelming requests from businesses and limited funds available.

The terms are 2.75% for non-profits and 3.75% for private businesses. The Loan is fixed for 30 years.

There are several provisions included in the closing documents of the loan that are important to review. Below are excerpts from the language contained in the closing documents.

EIDL Collateral Provision – Loans above $25,000

For loan amounts of greater than $25,000, Borrower hereby grants to SBA, the secured party hereunder, a continuing security interest in and to any and all “Collateral” as described herein to secure payment and performance of all debts, liabilities and obligations of Borrower to SBA hereunder without limitation, including but not limited to all interest, other fees and expenses (all hereinafter called “Obligations”).  The Collateral includes the following property that Borrower now owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. 

Compliance Provision

You must keep records of your expenditures from the proceeds Borrower will maintain current and proper books of account in a manner satisfactory to SBA for the most recent 5 years until 3 years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first.

Transferring Assets Provision

Borrower will not, without the prior written consent of SBA, make any distribution of Borrower’s assets, or give any preferential treatment, make any advance, directly or indirectly, by way of loan, gift, bonus, or otherwise, to any owner or partner or any of its employees, or to any company directly or indirectly controlling or affiliated with or controlled by Borrower, or any other company.

Please email Anthony Figliola, EVP & Head of Economic Development at Afigliola@Empiregs.com or call at (516) 663-5335 to get more information on how we can help you.